Abstract

SMEs account for 75% of all business entities in Sri Lanka and contribute to about 45% of total employment. Two-thirds of SMEs reported a decrease in demand for their products or services since COVID-19, and almost three-quarters reported decreased sales. The question of why some SMEs failed to withstand the COVID-19 crisis whereas some Sri Lankan SMEs survived remains unanswered. It demonstrated very clearly how frail the economy of Sri Lanka is and raised doubts about the resilience of Sri Lankan businesses. This research investigated the factors affecting the resilience of SMEs in Sri Lanka.
This research used a conceptual framework comprised of Dynamic Capabilities, Social Capital, and Digital Capabilities to analyze the antecedents of resilience in SMEs in Sri Lanka. A randomly selected sample of 76 SMEs in Sri Lanka were analyzed using Partial Least Squares Structured Equation Modelling (PLS-SEM) method. Results indicate Dynamic Capabilities, Social Capital and Digital Capabilities have a significant positive influence on SME resilience. Dynamic Capabilities, Social Capital and Digital Capabilities together explained 29% of the variance in resilience of SMEs. The development of knowledge, both theoretical and empirical, has become critical in order to understand how SMEs endured the crisis, adapted to it, managed it, built resilience, and ultimately recovered from it. Such knowledge will become invaluable in future crisis situations to protect SMEs in Sri Lanka.

Keywords: Dynamic Capabilities, Social Capital, Resilience, SME